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Europe and US equity futures retreated while stocks in Asia declined as an unexpectedly strong US jobs report raised the prospect of more rate hikes from the Federal Reserve. Concern over US-China geopolitical tensions also weighed on sentiment.
The dollar climbed for a third day after a gauge of its strength rose more than 1 percent Friday, when figures showed a surge in payrolls and unemployment at a 53-year low. This points to persistent US inflation and bolsters the case for more rate increases. South Korean and Australian stocks also declined.
Shares fell in Hong Kong and mainland China, with the Hang Seng Index on course for the lowest close in a month. US-listed Chinese stocks slipped Friday after the Biden administration decided to postpone Secretary of State Antony Blinken’s upcoming trip to China in light of an alleged Chinese spy balloon, that was later shot down.
“The episode should be a big surprise to investors given the market’s previous expectation that Sino-US relationship could improve after the now called-off Blinken visit,” said Willer Chen, senior research analyst at Forsyth Barr Asia.
In Japan, stocks climbed and the yen weakened after the Nikkei reported that the government had approached Bank of Japan Deputy Governor Masayoshi Amamiya about succeeding Haruhiko Kuroda as head of the central bank.
While the Japanese government refuted the report, investors assume a greater likelihood of the current ultra-easy monetary policy enduring if one of its architects succeeds Kuroda.
“The chances of rejecting current policy have become slim,” said Toru Suehiro, chief economist at Daiwa Securities, in a note. “While the scrapping of yield-curve control is possible once the stabilisation of the bond market is confirmed, a clear rate-hike move like ending the negative rate seems unlikely.”
Meanwhile, the robust US labour data on Friday “had serious implications for Fed policy — simply put, it confirms our long-standing belief that the Fed will have to go higher for longer than what optimistic market scenarios had priced in,” Win Thin, global head of currency strategy at Brown Brothers Harriman, wrote in a note. “We still have a ways to go to get to peak Fed Funds rate, and yet folks are still looking for second-half rate cuts in what would be an extremely quick turnaround.”
The jobs data spurred yields on Treasuries to extend climbs for a second day, while Australia’s bonds slid.
Traders will monitor this week’s $96 billion of Treasury note and bond auctions, which will be a test for the market, according to Daniel Mulholland, head of rates at Crews & Associates.
The Turkish lira was little changed against the dollar in early trading. Turkey and neighbouring Syria were hit by a powerful earthquake before dawn yesterday, killing more than 110 people.
Elsewhere, oil steadied as traders took stock of the outlook for demand in China and the latest sanctions on Russian energy flows came into effect. Gold rose.
Adani Group assets are facing continued volatility this week. All of the group’s 10 stocks declined at the open in India, deepening their selloffs.
Flagship Adani Enterprises decided to shelve plans for its first-ever public sale of bonds, according to people familiar with the matter.
While declines in shares were less savage on Friday than in previous days, the stock rout has roughly halved the market value of firms in the Indian group since Hindenburg Research’s claims for manipulation and accounting fraud.
“It’s clearly very important to the country because the operating businesses are so widespread,” Belita Ong, chairman of Dalton Investments, said on Bloomberg Television. “Our belief is that the government will take whatever steps are necessary to stabilise the situation, make sure the operating entities are working.” — Bloomberg.
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